National Bank of Canada v. Clifford Chance (1996), 30 O.R. (3d) 746 (Ct. J.(Div. gén.))

  • Document:
  • Date: 2018

National Bank of Canada v. Clifford Chance Bank of Nova Scotia v. Clifford Chance

Canadian Imperial Bank of Commerce v. Clifford Chance Royal Bank of Canada v. Clifford Chance

[Indexed as: National Bank of Canada v. Clifford Chance]

 

30 O.R. (3d) 746

[1996] O.J. No. 3251

Court File Nos. 95-CU-85400-CM, 95-CU-85405, 95-CU-85398 and 95-CU-85399

Ontario Court (General Division),

Ground J.,

September 19, 1996

 

Civil procedure — Service ex juris — Forum conveniens — Stay of proceedings — Canadian financial institutions financing development in England — English solicitors providing legal opinion about status of company whose shares were being pledged as security for the loan — Opinion incorrectly stating that company a private limited company — Company being a private unlimited company — Lenders suing English solicitors and making claims for negligence, negligent misrepresentation, breach of contract, and breach of fiduciary duty — Claims for negligent misrepresentation and for breach of contract within rule for service ex juris — Claims for negligence and breach of fiduciary duty outside of rule for service ex juris but appropriate to grant leave for service ex juris — Actions however should be stayed as England the forum conveniens — Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 17.02(f), (g), (h), and 17.03(1).

OYEH, an Ontario corporation, owned all the shares of OYCWH, a United Kingdom corporation that, through two subsidiaries, owned the Canary Wharf project in London, England. OYEH pledged its shares in OYCWH in a loan transaction, in which OYDL was the borrower to finance the Canary Wharf project. The transaction closed in June 1989, and the plaintiffs, in four actions, were the institutional lenders. On the closing, OYEH’s Canadian solicitors delivered an opinion about the status of OYCWH to the lenders’ Canadian solicitors, which opinion attached an opinion from the defendant CC, an English law firm. The CC opinion, which was addressed to the lenders’ solicitors and to the borrowers’ solicitors, stated that OYCWH was a private limited company under the laws of England. This statement was incorrect because OYCWH was a private unlimited company. The shareholders of such a company cannot be sued directly but can be compelled to contribute to the payment of debts if the company is wound up.

Subsequently, OYDL suffered financial difficulties but the plaintiff banks did not enforce the pledge of the OYCWH shares because to do so would have exposed them to the liability of the shareholders of an unlimited liability company. The security in OYCWH was thus lost to the lenders, and they commenced actions in Ontario against CC alleging negligence, negligent misrepresentation, breach of contract, and breach of fiduciary duty. CC moved against the actions on the grounds that service outside Ontario was not authorized by rule 17.02 of the Rules of Civil Procedure or, if authorized, the actions should be stayed because Ontario was not the convenient forum for the trial.

 

Held, there should be an order staying the actions.

 

It was necessary to consider whether each of the claims came within one of the clauses of rule 17.02 for service outside Ontario. The claim for negligent misrepresentation came within cl. (g) “in respect of a tort committed in Ontario” because this tort occurs in the jurisdiction where the advice, or opinion, or representation was received or acted upon. The claim for breach of contract came within cl. (f)(i) for a “contract made in Ontario”. The offer of the retainer to provide the opinion was made and accepted in a telephone call from Toronto to London, and where a contract is made by telephone, the contract is made at the place where the offeror is telephoning since that is the place to which the acceptance is communicated by the offeree. The contract claim also came within cl. (f)(iv), for “a breach of contract committed in Ontario” in that, in the contract, the plaintiff banks and CC contemplated the delivery of a correct opinion in Toronto and so the contract was breached in Ontario. However, the claims for breach of fiduciary duty and for negligence were not within rule 17.02. It was acknowledged that a claim for breach of fiduciary duty was not included within the rule. The claim for negligence did not come within cl. (g), because the negligence in the preparation of the opinion occurred in England and to determine where the tort of negligence occurs, it is necessary to determine which jurisdiction has the most real and substantial connection to the negligent act, which was England. Neither did the negligence claim come within cl. (h) “in respect of damage sustained in Ontario arising from the tort wherever committed”. Here the damage was sustained in England in that the direct result of the negligence was that the plaintiff banks were unable to realize upon their security and have a meaningful participation in the United Kingdom administration. Although these two claims did not fall within rule 17.02, it was appropriate to grant leave pursuant to rule 17.03(1) for service outside Ontario because these claims were so closely connected with the other claims. In the result, the motion to set aside service ex juris should be dismissed.

The next question was that of forum conveniens. The actions arose out of a highly complex transaction involving corporate borrowers, institutional lenders, shares, assets, law firms, legal opinions, contracts, and funds located in or governed by the laws of Ontario and England. There were connecting factors to both Ontario and England and each jurisdiction had a real and substantial connection to the matters in dispute. The onus was on the defendant to establish England as the more appropriate forum. This onus was met. The actions arose out of the delivery by a firm of English solicitors, not authorized to practise and not practising in Ontario, of an opinion entirely governed by English law with respect to the pledge of shares in an English company and the consequences of the enforceability of the pledge in view of the fact that the company was an unlimited company. The opinion was delivered in connection with the financing of a project within England and all of the security for the loan was located in England.

 

Cases referred to

 

Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897, 77 B.C.L.R. (2d) 62, 102 D.L.R. (4th) 96, 150 N.R. 321, [1993] 3 W.W.R. 441, 14 C.P.C. (3d) 1; Canadian Commercial Bank v. Carpenter (1989), 39 B.C.L.R. (2d) 312, 62 D.L.R. (4th) 734, [1990] 1 W.W.R. 323 (C.A.); Canadian Westinghouse Co. v. Davey, [1964] 2 O.R. 282, 45 D.L.R. (2d) 321 (C.A.); Frymer v. Brettschneider (1994), 19 O.R. (3d) 60, 115 D.L.R. (4th) 744, 28 C.P.C. (3d) 84 (C.A.); Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, 52 B.C.L.R. (2d) 160, 76 D.L.R. (4th) 256, 122 N.R. 81, [1991] 2 W.W.R. 217, 46 C.P.C. (2d) 1, 15 R.P.R. (2d) 1; Tolofson v. Jensen, [1994] 3 S.C.R. 1022, 100 B.C.L.R. (2d) 1, 120 D.L.R. (4th) 289, 175 N.R. 161, [1995] 1 W.W.R. 609, 22 C.C.L.T. (2d) 173, 32 C.P.C. (3d) 141, 7 M.V.R. (3d) 202; Upper Lakes Shipping Ltd. v. Foster Yeoman Ltd. (1993), 14 O.R. (3d) 548, 17 C.P.C. (3d) 150 (Gen. Div.); Viscount Supply Co. (Re), [1963] 1 O.R. 640, 40 D.L.R. (2d) 501, 4 C.B.R. (N.S.) 256 (C.A.); Voth v. Manildra Floor Mills Pty. Ltd. (1990), A.L.J.R. 83

 

Statutes referred to

 

Bank Act, S.C. 1991, c. 46, s. 239(1)

Companies Act, 1985 (U.K.), c. 6

Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 17.02, 17.03, 17.06(2)(a)

MOTIONS to set aside service ex juris or to stay action on the grounds of forum conveniens.

F. Paul Morrison and Susan E. Opler, for moving party (defendant).

John W. Brown, Q.C., and Mary Jane Stitt, for responding parties (plaintiffs), National Bank of Canada, Canadian Imperial Bank of Commerce and Royal Bank of Canada.

Patricia D.S. Jackson and Wendy M. Matheson, for responding party (plaintiff), Bank of Nova Scotia.

 

GROUND J.: — These motions are brought by the defendant, Clifford Chance, in all four actions to stay the action or in the alternative set aside service of the statement of claim outside Ontario.

The actions brought by the plaintiff banks arise out of an opinion delivered by the defendant, Clifford Chance, a firm of solicitors whose principal office is in London, England, on the closing of financings with respect to the Canary Wharf project in London, England, by Olympia and York Developments Limited (“OYDL”) and various subsidiaries. The plaintiff banks were the institutional lenders to whom the opinion was delivered on closing.

 

Factual Background

 

The assets of the Canary Wharf project (the “Project Assets”) were owned by two U.K. subsidiaries of Olympia and York Canary Wharf Holdings, a U.K. corporation (“OYCWH”). All of the shares of OYCWH were held by Olympia and York European Holdings Limited, an Ontario corporation (“OYEH”), and were pledged to the lenders, pursuant to the equity financing which closed June 14, 1989 (the “Equity Loan”). The opinion of Clifford Chance delivered on the closing was with respect to the status of OYCWH and the validity and effect of the pledge of the shares of OYCWH to the lenders.

It is alleged in the action commenced by the Bank of Nova Scotia (“BNS”) that Clifford Chance was aware that BNS was continuing to rely on the Clifford Chance opinion in advancing a further loan to OYEH in August 1990 (the “OYEH Loan”).

The Clifford Chance opinion stated in part that OYCWH “is a private limited company duly incorporated under the laws of England”. It is conceded that the opinion was incorrect in that OYCWH was a private unlimited company incorporated under the laws of England. The concept of an unlimited company is not known to the law of Ontario and the court is advised that it is fairly unusual under the laws of England. It is defined as “a company not having any limit on the liability of its members”. Although the shareholders of an unlimited company cannot be sued directly by the company’s creditors, the creditors can cause the unlimited company to be wound up and the liquidator can then compel the shareholders to contribute to the payment by the company of all its debts as well as the costs of the winding-up. It is agreed that for this reason the shares of unlimited companies are not accepted as security for loans.

The terms of the Equity Loan were contained in four virtually identical term loan agreements between each of the plaintiff banks and OYDL, Olympia and York Realty Credit Corp., an Ontario corporation which acted as the borrower in the Equity Loan (“OYRCC”), and OYEH. OYDL’s obligations under the term loan agreements were secured by a limited recourse guarantee from OYEH and, in support of its guarantee, OYEH pledged all of the shares of OYCWH to the plaintiff banks pursuant to a pledge agreement dated June 14, 1989 (the “Pledge Agreement”). The purpose of the Pledge Agreement was to give the plaintiff banks enforceable security over OYCWH, two wholly-owned subsidiaries of which owned all of the Project Assets. Accordingly, by enforcing the pledge of the shares of OYCWH, the plaintiff banks could acquire control of the entities which owned all the Project Assets of the Canary Wharf project.

Annexed to the term loan agreements were the forms of opinions from the borrowers’ counsel to be delivered on closing. The Clifford Chance opinion delivered on closing to Canadian counsel and to the plaintiff banks was addressed to Smith, Lyons, Torrence, Stevenson & Mayer, the lenders’ Canadian counsel (“Smith, Lyons”), and to Davies, Ward & Beck, Canadian counsel to the borrowers (“Davies”) and provided, in the case of each of the plaintiff banks, “this opinion is solely for the benefit of the persons to whom it is addressed and the Bank and is not to be relied on by any other person for any other purpose”.

The Clifford Chance opinion was delivered on closing together with the Davies opinion. The Davies opinion contained the following paragraphs:

8.    OYCW is a private limited company, duly incorporated under the laws of England.

9.    The share capital of OYCW is  500,000,000 divided into 500,000,000 shares of  1 each of which 330,000,002 have been issued (the “Issued Shares”).

10.  European Holdings is the registered holder of 330,000,001 of the Issued Shares.

11.  696737 Ontario Inc. is the registered holder of 1 of the Issued Shares.

12.  No further consent on the part of the directors or shareholders of OYCW, and no other action on the part of OYCW is required, in order to permit an application by the Bank to transfer the OYCW Pledged Securities into the name of the Bank provided an Event of Default (as defined in the European Holdings Guarantee) has occurred and while it is continuing, and if such application were made today in such circumstances there would be no impediment to the transfer of the OYCW Pledged Securities to the Bank other than the ability of (i) the directors and shareholders of OYCW to pass resolutions revoking the resolutions passed by them on the 14th of June, 1989 and (ii) the shareholders of OYCW to pass a resolution or resolutions to change the memorandum and articles of association of OYCW.

 

The reliance section of the Davies opinion contained the following paragraph:

In giving the opinions hereinafter expressed in paragraphs 8, 9, 10, 11 and 12, we have relied solely on an opinion of Clifford Chance dated the date hereof, a copy of which has been delivered to you.

The Clifford Chance opinion contained the same language as set forth in paras. 8 to 12 of the Davies opinion.

As stated above, it is conceded that the Clifford Chance opinion was incorrect to the extent that OYCWH is an unlimited company under the laws of England.

The subsequent financial difficulties of OYDL and its subsidiaries are well known to the general public and to this court. On May 14, 1992, OYDL and certain of its subsidiaries, including OYEH, made an application to this court under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the “C.C.A.A.”), for protection against their creditors and on May 28, 1992, administration orders were granted in the U.K. with respect to 14 English companies involved in the Canary Wharf project, including OYCWH and its operating subsidiaries which owned the Project Assets. When OYRCC went into default under the Equity Loan, the plaintiff banks did not enforce the Pledge Agreement because, by acquiring the shares of OYCWH, they would become liable on an unlimited basis for its debts and obligations in the event that it was wound up by its creditors. Accordingly, the plaintiff banks lost a critical security for the Equity Loan.

The actions commenced by the plaintiff banks against Clifford Chance assert claims of negligence, negligent misrepresentation, breach of contract and breach of fiduciary duty.

 

Defendant’s Submissions

 

The motions brought by the defendant, Clifford Chance, are brought on the grounds that the service of the statements of claim in the actions outside of Ontario is not authorized by rule 17.02 of the Rules of Civil Procedure and that, even if the courts should find that service of the statements of claim is authorized by rule 17.02, Ontario is not the convenient forum for the trial of these actions. It is the position of the defendant that each claim or cause of action asserted must come within rule 17.02 and, if any of the causes of action falls outside of rule 17.02, service ex juris must be set aside under rule 17.06(2)(a). The defendant further submits that, on a motion to set aside service ex juris, the onus is on the plaintiff to establish that it has a good arguable case that each cause of action falls within rule 17.02 (see Canadian Westinghouse Co. v. Davey, [1964] 2 O.R. 282, 45 D.L.R. (2d) 321 (C.A.)) or that there is reasonable evidence that each cause of action falls within rule 17.02 (see Upper Lakes Shipping Ltd v. Foster Yeoman Ltd. (1993), 14 O.R. (3d) 548, 17 C.P.C. (3d) 150 (Gen. Div.)). In addition, the defendant submits that the effect of the recent trilogy of decisions in the Supreme Court of Canada (Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, 76 D.L.R. (4th) 256; Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993] 1 S.C.R. 897, 102 D.L.R. (4th) 96; and Tolofson v. Jensen, [1994] 3 S.C.R. 1022, 120 D.L.R. (4th) 289), is that, even if each cause of action does come within rule 17.02, the court must be satisfied that with respect to each cause of action there is a real and substantial connection to Ontario. The defendant further states that, if the causes of action do not meet the test for service ex juris under rule 17.02, the plaintiffs must apply for leave for service ex juris under rule 17.03 and in granting leave the court must be satisfied that there is not a more convenient forum than Ontario for the trial of the action.

With respect to the applicability of rule 17.02 to the various causes of action asserted in the statements of claim, cl. (f) of rule 17.02 applies with respect to the cause of action in contract. It is agreed that there is not a contract between the plaintiff banks and Clifford Chance providing that it is to be governed by or interpreted in accordance with the law of Ontario, or that the courts of Ontario are to have jurisdiction. The defendant maintains that there is no evidence that there was any contract between the plaintiff banks and Clifford Chance or that, if there was a contract, it was made in England and not in Ontario and that, in any event, the breach of contract by Clifford Chance was committed in England.

With respect to the cause of action based on breach of fiduciary duty, the defendant’s position is that a claim for breach of fiduciary duty is not covered by rule 17.02 and, further, that there is no reasonable evidence that there was a fiduciary relationship between the plaintiff banks and Clifford Chance, or of any trust or vulnerability on the part of the plaintiff banks vis–vis Clifford Chance.

With regard to cl. (h) of rule 17.02, the defendant submits that there was no damage sustained in Ontario arising from a tort or breach of contract. It is the defendant’s position that the plaintiff banks have not established that they suffered any damage as a result of the incorrect opinion received from Clifford Chance but that, if any damage was sustained, it is damage in respect of an economic loss and that such damages are sustained in the jurisdiction where the financial records of a corporation are kept. They maintain that the provisions of s. 239(1) of the Bank Act, S.C. 1991, c. 46, state that a bank’s financial and other records “shall be kept at the head office of a bank or at such other place in Canada as the directors think fit” and that there is no evidence that the directors of any of the plaintiff banks have determined that the bank’s financial and other records shall be kept at any place other than the head office. The head office of three of the plaintiff banks is located outside Ontario and only the head office of CIBC is located in Ontario. Accordingly, if the plaintiff banks have sustained damage as a result of the Clifford Chance opinion, only CIBC has sustained damage in Ontario. Finally, the defendants submit that, even if the effect of the loss on the Equity Loan is reflected on the books and records of the banks in Canada, the loss was sustained as a result of being unable to realize upon security in England as a result of the services performed by Clifford Chance in England and that the alleged negligence and the alleged breach of contract occurred in England. The defendant submits that the situation is analogous to a personal injuries claim where the accident occurred in another jurisdiction but the plaintiff is a resident of Ontario and continues to suffer the effects of the accident in Ontario. In these situations, the Ontario courts have declined to accept jurisdiction.

Clause (g) of rule 17.02 authorizes service ex juris in the case of a tort committed in Ontario. The statements of claim allege negligence in the preparation of the Clifford Chance opinion and also allege the tort of negligent misrepresentation. The defendant takes the position that the negligence in the preparation of the opinion clearly took place in England and that, with respect to the tort of negligent misrepresentation, the courts have adopted the test of where the tort in substance occurred and this substantive test requires the courts to consider the facts in each particular case. The defendants submit that in the case at bar the defendant is located in England, the work upon which its opinion was based was done in England, the opinion was dispatched from England and dealt with questions of English company law and the security on shares of an English company.

In addition, the opinion was provided in connection with a loan for a project in England and any enforcement of the security dealt with in the opinion would take place in England. The defendant submits that the law of England is the law that is likely to have been in contemplation of the parties and that England is the jurisdiction most substantially affected by the defendant’s activities. The defendant also submits that there is no reasonable evidence that the plaintiff banks suffered any damages as a result of the error in the Clifford Chance opinion but that, on the contrary, the plaintiff banks would have suffered exactly the same loss in the English administration had OYCWH been a limited company. The plaintiff banks were aware in making the Equity Loan that there would be construction financing secured on the assets of the Canary Wharf project and that such claims would have ranked ahead of the position of the plaintiff banks as shareholders of OYCWH and accordingly, in the English administration, the shares would have been of no value even if they had been shares in a limited company.

In dealing with the principle of forum non conveniens, the defendant submits that the plaintiff banks bear the onus of satisfying the court that there is no more appropriate forum for the trial of these actions than Ontario and that, as a result of the decision in Amchem, supra, legitimate juridical advantage is only one of a number of factors to be considered by the court in determining the appropriate forum. In any event, the legitimate juridical advantage of oral discovery in Ontario asserted by the plaintiffs on these motions is not a substantial advantage on these actions. The defendant submits that in analyzing the various connecting factors the court must conclude that England is a more appropriate forum for the trial of these actions than Ontario. The connecting factors referred to by the defendant are that the opinion was prepared by a firm of English solicitors in England and concerned English law and an English company; the Equity Loan related to an English project; Davies sought out the services of Clifford Chance in England by communicating with solicitors in Clifford Chance’s English office; Clifford Chance is authorized to practise law in England and is not authorized to practise law in Ontario; the opinion requested by Davies was as to matters of English law concerning the shares of OYCWH, a company incorporated under the English Companies Act, 1985, c. 6; the advice sought was with respect to the plaintiffs’ rights to enforce the pledge of the OYCWH shares; the pledge was provided as security in connection with a loan by the plaintiffs, which constituted an infusion of equity into the Canary Wharf Project to be constructed in London, England; the opinion was issued in England and delivered initially by fax transmission and subsequently by mail from England; OYCWH’s only assets were the shares of the Operating Subsidiaries, both incorporated under the English Companies Act, 1985; the assets of the Operating Subsidiaries were limited to the Canary Wharf Project in London, England; all inquiries, searches and examinations undertaken by Clifford Chance occurred in England; Clifford Chance was not required to examine any of the loan documents as a condition to being able to provide the Clifford Chance opinion; and there is no suggestion that, at the outset of the retainer, the parties anticipated any need for Clifford Chance to attend in Ontario to fulfil its mandate and there was in fact no such need.

In addition, with respect to the claim in tort, the defendant submits that an Ontario court would conclude that the tort occurred in substance in England and would have to apply English law as the proper law of the tort. Accordingly, if the actions were tried in Ontario, the Ontario court would require expert evidence from English solicitors on various points including whether Clifford Chance, who were solicitors to the borrowers, owed a duty of care to the plaintiffs; if so, the standard of care owed by Clifford Chance to the plaintiffs; if Clifford Chance breached the standard of care, whether the breach can be said to have caused the damages claimed by the plaintiffs; the nature of the damages recoverable in tort; the limitation period for the commencement of the action; the obligation of the plaintiffs to mitigate their damages; and the right of Clifford Chance to claim contributory negligence. The defendant further submits that the witnesses required for the trial of the actions would mainly be in England and not compellable in Ontario; that the loss of juridical advantage in having no oral discovery in England is more serious for Clifford Chance than for the plaintiffs; that the evidence to establish the claims would be based almost entirely on English law or English practice including the effect, if any, that OYCWH’s unlimited status had on the plaintiffs’ ability to take steps to enforce their security under the Pledge Agreements, the alternatives available to the plaintiffs under English law to gain control of the OYCWH shares without the plaintiffs exposing themselves to potential unlimited liability, the rights, if any, that the plaintiffs would have enjoyed in the English administration had OYCWH been a limited company, and the availability of other Canary Wharf Project security and the rights that the plaintiffs would have enjoyed in the English administration had they been able to obtain such security.

 

Plaintiffs’ Submissions

The plaintiff banks submit that all of the causes of action contained in the statements of claim do come within rule 17.02, with the exception of the claim for breach of fiduciary duty which cause of action, they submit, is so closely connected to the other causes of action that the court ought to exercise its discretion and grant leave for service ex juris pursuant to rule 17.03. The plaintiff banks further submit that the onus is on the defendant to establish that the plaintiffs’ causes of action do not come within rule 17.02, that, for that purpose, the allegations contained in the statement of claim should be accepted as true and that on a motion to set aside service ex juris, the court should consider only facts relevant to jurisdiction and ought not to inquire into the merits of any particular cause of action.

With respect to the tort of negligent performance, it is the position of the plaintiff banks that the tort is committed where the injury or harm is suffered and that the loss suffered by the plaintiff banks on the Equity Loan was economic loss and is therefore incurred where that loss is recorded on the books and records of the plaintiffs in Ontario. It is their position that with respect to negligent misrepresentation, the tort occurs in the jurisdiction where the advice was received and relied upon or acted upon. In this case, the opinion was received and relied upon in Ontario.

As to the cause of action in contract, the plaintiff banks submit that Clifford Chance was retained to act as counsel to provide the opinion with respect to OYCWH by telephone call from Davies in Toronto to Clifford Chance in London and that accordingly the retainer contract of Clifford Chance was made in Ontario because that is the place where the acceptance was communicated. In any event, they submit that the breach of contract occurred in Ontario because the advice which is the subject-matter of the contract was incorrectly given in Ontario and accordingly service ex juris is authorized by cl. (f)(iv) of rule 17.02. With respect to the inclusion of the breach of fiduciary duty claim in the statements of claim, the court should make an order pursuant to rule 17.03 validating service on the basis that the claim for breach of fiduciary duty is so closely connected to the other claims that it would result in a multiplicity of proceedings to require it to proceed separately.

As to Ontario being the appropriate forum for the trial of these actions, the plaintiff banks take the position that, if the causes of action fall within rule 17.02, the plaintiff banks have a prima facie right to have the actions tried in Ontario and that this right may only be displaced if the court is satisfied that there is some other forum which is more appropriate for the trial of the actions.

The plaintiff banks submit that the factors favouring Ontario as the appropriate forum are the following: the plaintiffs carry on business in Ontario and Ontario law will be primarily relevant to the action; the vast majority of the potential witnesses reside in Ontario and considerable expense would be involved in having those witnesses travel to England whereas the few witnesses located in England can easily travel to Ontario or be required to provide written evidence; the bulk of documentary evidence is in Ontario since Ontario was where the loan transaction was negotiated, agreed upon, documented, completed, and subsequently administered; the Equity Lenders also considered their financial and legal positions under the Equity Loan with their advisors in Ontario and filed in the C.C.A.A. proceedings in Ontario in order to protect their interests under the Equity Loan; the lawyers representing all of the parties in connection with the loan transaction, except Clifford Chance, are located in Ontario; the plaintiffs gain a real juridical advantage by litigating the dispute in Ontario as there is no oral discovery procedure in England; the torts occurred in Ontario and the law of Ontario will determine liability and damages; the claim for breach of contract will be governed by Ontario law because it is the forum with which the contract has the closest and most real connection; the claim for breach of fiduciary duty will also be determined by Ontario law as the jurisdiction which has the most substantial connection with the activities giving rise to the breach of fiduciary duty; Clifford Chance is an international law firm which carries on business in Ontario, as it did in this case; the borrower under the Equity Loan, OYRCC, is an Ontario corporation; OYEH and OYDL, guarantors under the Equity Loan, are Ontario corporations; Ontario is the governing law of all the material agreements relating to the Equity Loan and OYEH Loan; Davies and Smith, Lyons, and the lawyers from those firms who provided legal services in connection with the Equity Loan, carry on business in and are residents of Ontario; the Clifford Chance opinion was discussed, revised and finalized in conjunction with discussions between Smith, Lyons and Davies in Toronto with the participation of Clifford Chance in a telephone conference call with Smith, Lyons and Davies; the closing of the Equity Loan occurred in Toronto; the Clifford Chance opinion was delivered at the closing of the Equity Loan; the bank, Smith, Lyons and Davies relied upon the Clifford Chance opinion in Toronto; any possible third party claims against Smith, Lyons or Davies would be brought in Ontario; the funds were advanced by the bank in Toronto to an Olympia & York account in Toronto; the financing statement in regard to the Equity Loan was filed under the Ontario legislation in Toronto; all closing and post-closing deliveries occurred in Toronto; the subsequent amendments to the Bank of Nova Scotia Term Loan Agreement were negotiated and executed in Toronto.

With respect to the OYEH Loan, the negotiation of the OYEH Loan took place in Toronto, the closing of the OYEH Loan took place through the exchange of documents in Toronto, the Toronto law firms of Davies and Aird & Berlis acted in respect of the OYEH Loan, the funds were advanced by the bank in Toronto to two Olympia & York accounts in London; the OYEH was to be repaid in Toronto, Ontario is the governing law for the OYEH note and its amendment; the bank and Olympia & York employees involved in the negotiation and approval of the Equity Loan and the OYEH Loan were at all material times resident in Ontario.

The plaintiffs further submit that connecting factors for both the Equity Loan and the OYEH Loan are that repayment pursuant to both the Equity Loan and the OYEH Loan was to occur in Toronto and thus the alternatives to the Equity Loan and the OYEH Loan would have been security on Canadian or U.S. assets, not English assets; the failure to pay and the consequent breach of those agreements occurred in Toronto; the banks’ damages were sustained in Ontario; the discussions between the Bank, Olympia & York and others in the late fall of 1991 and early 1992 took place in Toronto; the banks’ notice of default was delivered to Olympia & York in Toronto; OYDL and a number of related Olympia & York companies, including OYRCC and OYEH, filed for protection under the C.C.A.A. in Toronto and a C.C.A.A. plan was ultimately approved in Ontario; the banks submitted their proofs of claim in respect of the Equity Loan and the OYEH Loan to the Canadian administrator of the OYDL group of companies in the Ontario C.C.A.A. proceedings.

 

Reasons

Service Ex Juris

The claims in these actions are based upon negligence in the preparation of the Clifford Chance opinion, negligent misrepresentation, breach of contract and breach of fiduciary duty. The plaintiff banks take the position, with respect to the tort claims, that no tort occurs until damages are incurred and that, as there is no evidence before this court that the plaintiff banks would have been any better off in the ultimate result if they had been able to realize upon their security in England, there is no evidence that any damage has been sustained by the plaintiff banks. I do not accept that submission. The pleadings in these actions allege that the plaintiff banks suffered damage as a result of the inability to realize upon their security for the Equity Loan and the court must, on a motion under rule 17.02, accept the allegations in the pleadings as true unless the cause of action alleged is clearly untenable. Therefore, I must accept the statement that the plaintiff banks sustained damage as a result of their inability to realize upon the security for the Equity Loan; the calculation and extent of such damage is a matter for the trial judge.

It is necessary to determine first whether each of the claims asserted in these actions comes within one of the clauses of rule 17.02.

With respect to the claim of negligence in the preparation of the Clifford Chance opinion, the applicable clauses would have to be either “(g) in respect of a tort committed in Ontario” or “(h) in respect of damage sustained in Ontario arising from a tort or breach of contract, wherever committed”. It is clear that any negligence in the research and examination of documents in the preparation of the Clifford Chance opinion occurred in England. In my view, the weight of authority is to the effect that, to determine where the tort of negligence occurred, one must determine which jurisdiction had the most real and substantial connection to the alleged negligent act:

see Tolofson v. Jensen, supra. The test has also been described as where the tort in substance occurred. In the case at bar, it appears to me that the only jurisdiction with any real and substantial connection to the alleged negligence in the research, preparation and drafting of the Clifford Chance opinion is England.

Accordingly I find that, for purposes of cl. (g) of rule 17.02, the tort of negligence in the preparation of the Clifford Chance opinion was committed in England.

With respect to the tort of negligent misrepresentation, I think that the law is clear that the tort occurs in the jurisdiction where the advice, or opinion, or representation is received and relied or acted upon: see Canadian Commercial Bank v. Carpenter (1989), 39 B.C.L.R. (2d) 312, 62 D.L.R. (4th) 734 (C.A.). In this case, the opinion was received by the plaintiff banks at a closing in Toronto and the authorization of the advance of funds in reliance upon that opinion was made at the closing in Toronto. Accordingly, I find that the tort of negligent misrepresentation occurred in Ontario for purposes of cl. (g) of rule 17.02. I do not accept the submission of counsel for the defendant that the decision in Voth v. Manildra Floor Mills Pty. Ltd. (1990), A.L.J.R. 83, is applicable. The facts in that case do not indicate that there was any direct advice given by the accountants in Missouri to the Australian parent companies or that the accountants in Missouri had been retained to do anything for the Australian parent companies.

Having concluded that cl. (g) of rule 17.02, “a tort committed in Ontario”, is applicable to the tort of negligent misrepresentation but is not applicable to the tort of negligence in the preparation of the Clifford Chance opinion,

it becomes necessary to consider whether the tort of negligence in the preparation of the opinion comes within cl. (h) of rule 17.02, “in respect of damage sustained in Ontario arising from the tort or breach of contract wherever committed”. It appears to be the position of the plaintiff banks that, in the case of economic loss, injury or harm is suffered or damages incurred where that loss is recorded on the books of the plaintiff. I do not think that principle applies to lead to the result that the

tort of negligence occurred in Ontario in the case at bar. In my view, the damage resulting from the alleged negligent performance in the preparation of the Clifford Chance opinion was sustained in England in that the direct result of such negligence was that the plaintiff banks were unable to realize upon their security on the shares of OYCWH and indirectly on the project assets of the Canary Wharf project and therefore to have a meaningful participation in the U.K. administration. The recording of the impact of that harm or damage on the books of the various plaintiff banks in Canada does not, in my view, lead to the result that the damage or injury was sustained in Ontario. It appears to me to be analogous to continuing pain suffered by a plaintiff in Ontario as a result of an automobile accident in another jurisdiction.

Accordingly, I find that cl. (h) of rule 17.02 is not applicable to the tort of negligence in the preparation of the Clifford Chance opinion.

With respect to the claim in breach of contract, the potentially applicable clauses of rule 17.02 are cl. (f)(i), “the contract was made in Ontario”, (f)(iv), “a breach of contract has been committed in Ontario, even though the breach was preceded or accompanied by a breach outside Ontario that rendered impossible the performance of the part of the contract that ought to have been performed in Ontario”, or (h), “in respect of damage sustained in Ontario arising from a tort or breach of contract, wherever committed”. The defendant takes the position that there is no evidence of any contract between the plaintiff banks and Clifford Chance and that, accordingly, no action lies in breach of contract by the plaintiff banks against Clifford Chance. I do not agree. The allegations in the statement of claim support the position that Clifford Chance was retained by Davies to provide an opinion on OYCWH to Davies and Smith, Lyons and to the plaintiff banks. By accepting the retainer, Clifford Chance agreed to undertake such work for each of the parties to whom the opinion was to be delivered.

The offer of the retainer was made and accepted in a telephone call from lawyers at Davies in Toronto to lawyers at Clifford Chance in London, England, and I believe the law to be clear that where a contract is made by telephone between parties in two different jurisdictions, the contract is made at the place from which the offeror is telephoning as that is the place to which the acceptance is communicated by the offeree: see Re Viscount Supply Co., [1963] 1 O.R. 640, 40 D.L.R. (2d) 501 (C.A.).

Accordingly, I find that the contract between the plaintiff banks and Clifford Chance for the preparation delivery by Clifford Chance of an opinion with respect to OYCWH was made in Ontario. I also find that cl. (iv) of rule 17.02(f) is also satisfied in that the contract between the plaintiff banks and Clifford Chance contemplated the delivery of a correct opinion to the plaintiff banks in Toronto and accordingly that contract was breached in Ontario when an incorrect opinion was delivered even though such breach was preceded by a breach outside Ontario in the examination of documents, research and preparation of the opinion in England. As outlined above, my view is that the damages arising from the breach of this contract were sustained in England and accordingly cl. (h) of rule 17.02 is not applicable.

With respect to the claim for breach of fiduciary duty, it is acknowledged by the plaintiff banks that a claim for breach of fiduciary duty is not included within rule 17.02 and they seek leave pursuant to rule 17.03(1) for service ex juris with respect to the claim for breach of fiduciary duty. The defendant takes the position that the statements of claim fail to allege facts sufficient to support a claim for breach of fiduciary duty. As stated above, the facts alleged in the statement of claim do in my view, constitute a retainer of Clifford Chance to provide legal services to the plaintiff banks as well as to Canadian counsel and accordingly a solicitor-client relationship is established. It was evident to Clifford Chance that the plaintiff banks were relying upon it for the opinion with respect to the validity and enforceability of the pledge of the shares of OYCWH and, in this situation, it is not untenable to conclude that the circumstances gave rise to a fiduciary relationship between the plaintiff banks and Clifford Chance.

In Upper Lakes Shipping Ltd. v. Foster Yeoman Ltd., supra, at p. 562, Borins J. in dealing with a similar situation involving a claim for damages for breach of contract, as well as a claim for damages for breach of fiduciary duty, stated as follows:

Considered pragmatically, this claim is so closely connected with the plaintiff’s claim for damages for breach of contract that it would make little sense not to grant leave to the plaintiff to serve its statement of claim ex juris and, if necessary, validate service in respect to it. Indeed, on the basis of the record it is difficult at this stage to determine what difference there would be in regard to the damages which the plaintiff could recover in respect to each of its claims. Were leave not to be granted and were the plaintiff to pursue this claim against the defendant in the courts of the United Kingdom this would result in an undesirable multiplicity of litigation and, possibly, conflicting results. Therefore, the plaintiff is granted leave to serve ex juris its statement of claim in regard to its claim for damages for breach of fiduciary duty and there will be an order validating service of it upon the defendant.

It is my view that the reasoning of Borins J. is equally applicable to the case at bar, not only with respect to the claim for breach of fiduciary duty but with respect for the claim based upon negligence in the preparation of the Clifford Chance opinion and accordingly an order will issue validating the service ex juris of the statements of claim to the extent that they include claims for negligence in the preparation of the Clifford Chance opinion and claims for breach of fiduciary duty.

In the result, the motion to set aside the service ex juris of the statements of claim in these actions is dismissed.

 

Forum Conveniens

These actions arise out of a highly complex financing transaction involving corporate borrowers, institutional lenders, shares, assets, law firms, legal opinions, contracts, and funds located in, or governed by, the laws of Ontario and England. It was a classic international transaction with numerous connecting factors to both Ontario and England and the connecting factors cited by counsel establish that both Ontario and England have a real and substantial connection to the matters in dispute.

The defendant has moved to have the Ontario action stayed on the basis that England is clearly a more appropriate forum for the trial of these actions. Although there is much discussion in a number of the leading authorities in this area as to the onus on the plaintiff or the defendant with respect to forum conveniens, it appears to me that the result of recent decisions, including the “trilogy” of Morguard Investments Ltd. v. De Savoye, supra, Amchem Products Inc., supra, and Tolofson v. Jensen, supra, is that the defendant must clearly establish the existence of a more appropriate forum in order to displace the forum selected by the plaintiff. In Amchem, Sopinka J. stated at pp. 920-21:

It seems to me that whether it is a case for service out of the jurisdiction or the defendant is served in the jurisdiction, the issue remains: is there a more appropriate jurisdiction based on the relevant factors. If the defendant resides out of the jurisdiction this is a factor whether or not service is effected out of the jurisdiction. Residence outside of the jurisdiction may be artificial. It may have been arranged for tax or other reasons notwithstanding the defendant has a real and substantial connection with this country. The special treatment which the English courts have accorded to ex juris cases appears to be based on the dictates of Ord. 11 of the English rules which imposes a heavy burden on the plaintiff to justify the assertion of jurisdiction over a foreigner. In most provinces in Canada, leave to serve ex juris is no longer required except in special circumstances and this trend is one that is likely to spread to other provinces. This phenomenon was considered by the High Court of Australia in Voth, supra, in reaching its conclusion that the test should be the same for service ex juris cases and others. Whether the burden of proof should be on the plaintiff in ex juris cases will depend on the rule that permits service out of the jurisdiction. If it requires that service out of the jurisdiction be justified by the plaintiff, whether on an application for an order or in defending service ex juris where no order is required, then the rule must govern. . . . While the standard of proof remains that applicable in civil cases, I agree with the English authorities that the existence of a more appropriate forum must be clearly established to displace the forum selected by the plaintiff.

 

(Emphasis in original)

 

And in Frymer v. Brettschneider (1994), 19 O.R. (3d) 60 at p. 79, 115 D.L.R. (4th) 744 (C.A.), Arbour J.A. stated:

. . . when an issue of forum non conveniens is raised, the test will be the same whether service was effected ex juris or whether the defendant was served within the jurisdiction. In all cases, the test is whether there clearly is a more appropriate jurisdiction than the domestic forum chosen by the plaintiff in which the case should be tried. The choice of the appropriate forum is designed to ensure that the action is tried in the jurisdiction that has the closest connection with the action and the parties. All factors pertinent to making this determination must be considered.

Current jurisprudence has also determined that real juridical advantage is only one element to be considered in determining whether there is a more convenient forum.

In the case at bar, there are numerous connecting factors to both Ontario and England. With respect to location of witnesses and documents, it seems to me that they are about equally divided between Ontario and England and, in any event, the travel of witnesses or forwarding of documents from Ontario to England, or vice versa, would not seem to be a significant inconvenience in the context of persons and documents involved in international transactions of this sort. With respect to the proper law to be applied to the determination of the disputes in this action, it appears to me that the law is not complex and would not be difficult of proof whether English or Ontario law is applicable and whether the trial is heard in England or Ontario. The only juridical advantage cited by counsel for the

plaintiff banks is that England does not provide for oral discovery in actions such as these and that accordingly there is a juridical advantage to having the actions brought in Ontario. It does not seem to me that the availability of oral discovery is a very significant juridical advantage in these actions. There are very few facts in dispute with respect to the content of the opinion prepared and delivered by Clifford Chance or as to the accuracy of such opinion. The principal areas of dispute where evidence will be required would appear to be with respect to the effect on the plaintiff banks of the inability to realize on the security for the Equity Loan and the calculation of the damages incurred by the banks as a result of such inability. The evidence on both of these issues would, in my view, be required at trial. Counsel for the plaintiff banks have also raised the possibility of a limitation period problem under the laws of England in that the writs in these actions were issued in England on June 8, 1995 and that the courts may conclude that the work done by Clifford Chance was completed prior to June 8, 1989, being more than six years before the date of issuance of the writs. Although this is clearly a question of English law, it would appear to me that Clifford Chance was continuing with the work on the opinion up to and including June 14, 1989, the date on which the opinions were delivered and accordingly that the risk of a limitation period problem is not a substantial risk.

Considering all of the connecting factors to both England and Ontario, the court must determine which jurisdiction has the more real and substantial connection to the substance of this litigation. The actions here arise out of the delivery by a firm of English solicitors, who are not authorized to practise law in Ontario and do not practise law in Ontario, of an opinion entirely governed by English law with respect to the validity and enforceability of a pledge of shares of an English company and the consequences of the enforceability of that pledge in view of the fact that the English company is an unlimited company under English law and the exposure of shareholders of such a company to the claims of creditors under English law, the opinion was delivered in connection with the financing of a project totally within England and all of the assets on which the plaintiff banks expected to have direct or indirect security were located in England. In view of all these circumstances, I must conclude that England is clearly the more appropriate forum for the trial of these actions.

 

Accordingly, an order will issue that the four actions commenced by the plaintiff banks against Clifford Chance in Ontario be stayed.

Counsel are invited to make written submissions to me with respect to the costs of these motions on or before October 31, 1996.

 

Order accordingly.